Corporate Governance and Corporate Social Responsibility PDF

Corporate Governance and Corporate Social Responsibility Theories and Practices  LEARNING OBJECTIVES Discuss the corporate governance issues; Know the role of directors (BoDs); Understand the role of CSR in the organization; Identify the models of CSR and its issues; and Determin...

Corporate Governance and Corporate Social Responsibility Theories and Practices  LEARNING OBJECTIVES Discuss the corporate governance issues; Know the role of directors (BoDs); Understand the role of CSR in the organization; Identify the models of CSR and its issues; and Determine who are the stakeholders of the firms.  Corporate Governance Issues The corporation is a mechanism established to allow different parties to contribute capital, expertise and labor for their mutual benefit. – Investors/Shareholders – capital providers – Management – expertise & labor providers for running of company Board of directors (BODs) elected by shareholders to protect their interest. Corporate governance – relationship among BODs, management, and shareholders  The Role of Board of Directors – Setting corporate strategy, overall direction , mission and/or vision – Succession: Hiring, compensating and firing the CEO and top management – Control: monitoring, evaluating, and/or supervising top management – Reviewing and approving the use of organizational resources – Caring for stockholders’ interest  The Role of Board of Directors Low Degree of involvement High Monitor Evaluate & Initiate & (40%) Influence (30%) Determine (30%) Permit officers to Involved in review of make all decisions. selected key decisions, Take leading role in Formally reviews indicators or programs establishing & modifying selected issues of management mission, objectives, Votes as officers Approve, question & strategy & policies. recommend on makes final decisions Has very active actions. on mission, objectives strategic committees strategy & policies. Perform fiscal & mngt audits.  The Concept of CSR – Proposes that a private firm has responsibilities to society that extend beyond making a profit – Obligation of firm decision makers to make decisions & act in ways that recognize the interrelatedness of business & society. – It recognizes the existence of various stakeholders and firms deal with them Corporate Social Responsibility (CSR) refers to corporate self-regulation integrated into a business model, which usually involves active compliance with the law, ethical standards, and international norms. Corporate Social Responsibility (CSR) This concept aims to achieve positive impacts on the environment, consumers, employees, and the communities. Under the force of globalization, this theory has been challenged by the diminishing different roles of the government and firms, especially when the power of multinational companies is rising.  Models of CSR Self-interest Social Contract Stakeholder Management Stakeholder Stewardship  Position Responsible to Therefore… Stockholders/ Maximizing profit Minimalist owners Self interested Stockholders/ owners/ cost Do good when furthers quest “controllers” for growth and profit Social contract Those with social and legal Goes beyond law to spirit of contract commitment Stakeholder Those who influence Develop responsive Management direction and fortunes strategies Stakeholder Society as whole / future Solutions for social problems stewardship Who are the Stakeholders of Firms? Stakeholders are individuals, groups or institutions who have a stake in or are significantly influenced by an organization’s decisions and actions – Shareholders – Governments – Political & social action groups – Employees – Customers – Communities – Suppliers – Trade Associations  Issues of Trust and Change (Minimalist) Participants Change Issues Trust Trust grows when performance meets Hyper competition expectation; Investors Stockholders Globalization Distrust if fails to meet expectation Owners/Managers  Issues of Trust and Change (Self-Interest Model) Participants Change Issues Trust Trust grows when performance meets Competition expectation; Program Advocates Owners/Managers Reputation Enhancement Distrust if fails to meet expectation  Issues of Trust and Change (Stakeholder Management) Participants Change Issues Trust Primary and secondary Information access to firm Trust grows when increases stakeholders feel included in Owners/Managers Systems open to scrutiny Distrust if feel excluded  Issues of Trust and Change (Stakeholder Stewardship) Participants Change Issues Trust Trust grows when firm willing Spokespersons for tertiary Pressure to include tertiary to negotiate with spokespersons for tertiary Owners/Managers Worry about environment Distrust if feel excluded  Modeling the context Premodern – Minimalist – Self Interested Modern – The social contract Postmodern – Stakeholder (management and stewardship) Corporate Social Responsibility Pyramid  Economic Responsibility The foundation upon which all others rest. Be profitable  Legal Responsibility Law is society's codification of right and wrong. Play by the rules of the game. Obey the law  Ethical Responsibility Obligation to do what is right, just, and fair. Avoid harm. Be ethical.  Philanthropic Responsibility Contribute resources to the community. Improve the quality of life. Be a good corporate citizen  Insight… Different types or kinds of obligations in the pyramid are in constant and dynamic tension with one another. The most critical tensions are those involving the relationship of economics: between economic and legal, economic and ethical, and economic and philanthropic. The pyramid should not merely be seen sequentially or in its component parts, but holistically to aid the company in is decisions, actions, and policies. -- Jeff Haden End of Discussion  CLASSWORK 1 Name at least 5 companies (foreign or local) and discuss each layer of their CSR Pyramid. What do you think is the important layer? Why? Justify your answer. Ethics, Values, and Corporate Social Responsibility ASST. PROF. CRESILDA M. BRAGAS, MBA  Why study Ethics? Ethics are rules that help us tell the difference between right and wrong. They encourage us to do the right thing. It is how people try to live their lives according to a standard of “right” or “wrong” behavior – in both how we think and behave toward others and how we would like them to think and behave toward us.  What is Ethics? from the Greek word ethos, meaning character or custom," (also known as moral philosophy) is a branch of philosophy that addresses questions about morality.  Understanding Right and Wrong Moral standards are principles based on religious, cultural, or philosophical beliefs bay which judgments are based. A person’s beliefs can come from different sources such as: friends, family, ethnic background, religion, school, media, role models or mentors.  Values and Morals Values tell us what is important. They help us make decisions about right and wrong. Morals are rules we use to decide what is good or bad.  Understanding Right and Wrong Moral standards are principles based on religious, cultural, or philosophical beliefs bay which judgments are based. A person’s beliefs can come from different sources such as: friends, family, ethnic background, religion, school, media, role models or mentors. The Six Core Moral Values RESPECT FOR LIFE LOVE OF GOD RESPECT FOR AUTHORITY  The Six Core Moral Values LOVE OF TRUTH RESPONSIBLE DOMINION OVER MATERIAL THINGS RESPECT FOR DIGNITY OF HUMAN SEXUALITY Core Values of Human Beings Business Core Values  What is Value? Value is a worth of something or consider (someone or something) to be important or beneficial.  The Value of Value The worth can be expressed in two ways: a. Intrinsic Value – where a value is a good thing in itself and is pursued for its own sake whether anything comes from that pursuit or not. e.g. happiness, health, self-respect  The Value of Value b. Instrumental value – where the pursuit of that value is a good way to reach another value. e.g. Money is valued for what it can buy rather than for itself. But as the old saying goes: “Money can’t buy happiness”…  Corporate Social Responsibility (CSR) A business exhibits Corporate Social Responsibility (CRS) through their values, ethics, and the contributions it makes to communities. CRS is driven by a desire to protect customers and to treat employees and shareholders fairly.  The Meaning of CSR Corporate Social Responsivity (CSR) is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources.  The Meaning of CSR The totality of CSR can be best understood by three words: Corporate – means organized business. Social – everything dealing with people and the society at large Responsibility – means accountability Examples of CSR Pyramids of CSR  Business Ethics Examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole.  Nature of Business Ethics Complex because of no common consensus. because of dynamic nature of Dynamic business decision making.  Nature of Business Ethics because ethical decision making is Interdependent dependent on many factors and one’s decision affect others. because the frameworks referred for ethical decision making are usually normative and are Subjective varied in nature. These frameworks differ from people to people and organization to organization. Objectives of Business Ethics Providing ethical framework Solutions for Developing business situations understanding about that calls for ethical what is right and what judgments is wrong Objectives of Business Ethics Stakeholder approach of Ensuring Ethical business Behavior organizations Ensuring practical utility of business ethics Morality and Ethics Morality is concerned with understanding of what is right and wrong behavior. In the study of business ethics many people treat the concept of ethics and morality as same. Morality could be considered as one of the subject matters of study in business ethics.  Social Ethics Social ethics are the set of rules often unwritten that are accepted by a society on what is and is not appropriate. These are not laws to be obeyed, rather they are principles to be applied to different situations to help you make a proper decision based on what society deems appropriate.  An Insight… Social ethics may differ with different societies and cultures and hence what may be considered right and good for one may be perceived differently by another. However certain behaviors or moral principles have universal appeal and people are expected to posses them while interacting with fellow human beings.  Social Ethics Examples of Social Ethics: Charity Family Values Participation Acceptance Social ethics of sharing End of Discussion! ☺  Classwork 2 1. Explain briefly this statement: “ You can remove a man from society but you cannot remove society from the man”... Cite an instance to further explain the statement. The Concept of Ethical Theories What Are Ethical Theories? Explain what makes an action right or wrong Ethical theories vs. particular ethical judgments Analogy with scientific theories and observations  Ethical Theories ◼ Consequentialism ◼ Deontology ◼ Virtue Ethics ◼ Contractarianism ◼ Natural Law ◼ Relativism ◼ Divine Command Ethics  Consequentialism The rightness/wrongness of an action is determined by its consequences  Consequentialism Example: utilitarianism The right action is the one that promotes the greatest happiness of the greatest number (maximizes social utility) Jeremy Bentham (1748-1832) John Stuart Mill (1806-1873) Utilitarianism is a tradition of ethical philosophy that is associated with Jeremy Bentham (1747-1832) and John Stuart Mill (1806-1873), two late 18th- and 19th- century British philosophers, economists, and political thinkers.  Consequentialism Another example: ethical egoism The right action is the one that promotes the greatest happiness of the agent (maximizes the agent’s utility)  Two Ethical Egoists Benjamin Tucker (1854-1939) Ayn Rand (1905-1982)  Deontology The rightness/wrongness of an action is determined by inherent features of the action itself, or by an inherently valid rule  Deontology If an action is of the wrong kind, it is forbidden, no matter how good its consequences are Rejects both Utilitarianism and Ethical Egoism “The end doesn’t justify the means.” “The end doesn’t justify the means.” WHY?  Deontology Example: Kantianism Right actions must be universalizable and must treat rational agents as ends, not mere means (trade-offs forbidden) Immanuel Kant (1724- 1804)  Kant’s Deontology Universalizability: must be possible to will the principle of your action for everybody without inconsistency. Lying violates universalizability because lying presupposes and exploits a general practice of telling the truth.  Kant’s Deontology Ends, not mere means: don’t treat rational agents (others or yourself) as mere objects to be used or exploited. Personhood is the basis of ethical value and can’t be subordinated to other values. Mustn’t sacrifice the few even to benefit the many.  Virtue Ethics The rightness/wrongness of an action is determined by the character traits it expresses Emphasize what kind of person you should be  Virtue Ethics Examples: Aristotelianism, Confucianism Aristotle (384-322 BCE) Confucius (551-479 BCE)  Virtue Ethics Virtue-ethicists tend to side with deontologists against consequentialists – though not always  Contractarianism The rightness/wrongness of an action is determined by whether rational people do, or under appropriate conditions would, agree to it Example: John Rawls’ Veil of Ignorance (about which more later on)  Natural Law A body of legal or quasi- legal precepts that: ◼ are based in human nature, not convention ◼ can be ascertained by human reason ◼ set the standard for, and take precedence over, manmade laws  Natural Law “One may well ask: ‘How can you advocate breaking some laws and obeying others?’ The answer lies in the fact that there are two types of laws: just and unjust. I would be the first to advocate obeying just laws. One has not only a legal but a moral responsibility to obey just laws. Conversely, one has a moral responsibility to disobey unjust laws. I would agree with St. Augustine that ‘an unjust law is no law at all.’ …  Natural Law “… Now, what is the difference between the two? How does one determine whether a law is just or unjust? A just law is a manmade code that squares with the moral law or the law of God. An unjust law is a code that is out of harmony with the moral law. To put it in the terms of St. Thomas Aquinas: An unjust law is a human law that is not rooted in eternal law and natural law. Any law that uplifts human personality is just. Any law that degrades human personality is unjust.” – Martin Luther King, Jr., Letter from Birmingham Jail  Example of a Natural Law Theory The doctrine of double effect (Aquinas) – If an action has two results, one good one bad, it’s permissible only if a) the good outweighs the bad [consequentialist component] and b) the bad is only foreseen, not intended [non- consequentialist component] Actions individuated by their intentions  Example of a Natural Law Theory So collateral damage OK (civilian deaths foreseen but not part of plan) Dresden/Hiroshima not OK (civilian deaths part of plan)  Relativism The rightness of an action depends on the approval of some person/group/culture. Allows conflicting moralities: such-and-such is right for group A (because group A approves of it) but wrong for group B (because group B disapproves of it).  Relativism (What most philosophers regard as) bad arguments for relativism: ◼ relativism will make us tolerant (but the Nazis were relativists) ◼ cultures disagree about moral values (but they disagree about scientific facts too) ◼ ethical disagreements can’t be settled (but what’s wrong with reflective equilibration?)  Divine Command Ethics What makes an action right is the fact that God commands it. (As opposed to the view that God commands things because they are right already.) A form of relativism?  Ethical Theories and Ethical Standing What has ethical standing? - individuals? - communities? - non-human animals? - plants? - the non-living environment?  Ethical Theories and Ethical Standing Utilitarianism: those beings who can feel pleasure or pain (“The question is not, Can they reason? nor, Can they talk? but, Can they suffer?” – Jeremy Bentham) Virtue ethics: whatever beings a virtuous person would care about! Divine Command: whatever beings God cares about!  Simplicity in Ethics: Utilitarianism We ordinarily think beneficial results are one ethical consideration among others. Utilitarianism offers to explain the same range of ethical phenomena equally well by appealing solely to consequences. This would make it a superior theory – if in fact it explains them equally well.  CLASSWORK 3 Discuss at least 3 kinds of ethical theories and apply their significance in the corporate setting and to individuals within it.  Models of Corporate Social Responsibility LEARNING OBJECTIVES ▪ Explain the different models of CSR. ▪ Discuss the CSR best practices. ▪ Identify the need for CSR initiatives. ▪ Analyze various arguments in the issue of CSR. DIFFERENT MODELS OF CSR ▪ Friedman Model ▪ Ackerman Model ▪ Carroll Model ▪ Visser 2.0 CSR Model ▪ Environmental Integrity and Community Health Model ▪ Corporate Citizenship Model ▪ Stakeholder Model ▪ New Model of CSR FRIEDMAN MODEL ▪ The Friedman CSR model, often referred to as the Friedman Doctrine or Shareholder Theory was articulated by economist Milton Friedman. ▪ Friedman’s CSR model emphasizes profit maximization for shareholders as the primary corporate objective but faces growing scrutiny and calls for a more inclusive approach to corporate responsibility.  Core Principles of the Friedman Doctrine Profit Limited Social Authority of Maximization Responsibility Shareholders ACKERMAN MODEL ▪ This model was developed by Robert Ackerman and Robert Bauer in 1976 and outlines a structured approach for corporations to address social responsibilities. ▪ This model emphasizes the internal policy goals of a company and their relationship to corporate social responsibility (CSR). Key Phases of the Ackerman CSR Model Awareness: In this initial phase, top management recognizes a social problem and acknowledges the company's obligation to address it. This stage involves raising awareness among employees and stakeholders about the social issues. Planning: Once aware, the organization conducts an intensive study of the identified problem. This often involves hiring experts to analyze the situation and propose viable solutions. The planning phase is critical for developing strategies that align with both corporate goals and societal needs. Implementation: After planning, the next step is executing the proposed strategies. This phase integrates the developed policies into actionable plans, ensuring that the organization actively participates in addressing the social issue. Evaluation: The final stage involves assessing the effectiveness of the implemented strategies. Organizations must evaluate their performance in fulfilling their social responsibilities, considering feedback from various stakeholders and making necessary adjustments to improve future efforts. CAROLL MODEL ▪ Carroll's Pyramid of Corporate Social Responsibility was developed by Archie B. Carroll in 1991. This model presents a structured framework for understanding the various responsibilities that businesses have toward society, organized into four hierarchical categories: economic, legal, ethical, and philanthropic responsibilities. ▪ This model serves as a valuable tool for businesses aiming to navigate the complexities of corporate social responsibility by providing a structured approach to understanding and fulfilling their obligations to society. The CSR Pyramid Model VISSER 2.0 CSR MODEL ▪ The Visser 2.0 CSR Model, also known as CSR 2.0, is an evolved framework for Corporate Social Responsibility proposed by Wayne Visser. ▪ It aims to address the shortcomings of traditional CSR approaches by integrating modern principles that reflect the complexities of today's global challenges. ▪ By focusing on value creation, governance, societal contributions, and environmental integrity, companies can better navigate the complexities of modern business while contributing positively to society. The CSR Pyramid Model ENVIRONMENTAL INTEGRITY AND COMMUNITY HEALTH MODEL ▪ The Environmental Integrity and Community Health Model developed by Milton Redman is a significant framework in the realm of corporate social responsibility (CSR), particularly among U.S. corporations. ▪ This model emphasizes the interconnection between environmental sustainability and community well- being, advocating for businesses to operate in a manner that protects ecological integrity while also promoting the health of local communities. Key Features of Redman's Model Community Health Promotion: Focus on Environmental Integrity: Redman’s framework links corporate The model stresses the importance of actions directly to the health outcomes of maintaining ecological balance and communities. This includes initiatives minimizing environmental degradation. aimed at improving public health, Companies are encouraged to adopt supporting local economies, and ensuring practices that reduce pollution, conserve that business operations do not adversely resources, and promote biodiversity. affect community welfare. Corporate Accountability: The model Long-term Sustainability: By advocates for businesses to take integrating environmental integrity with responsibility not only for their economic community health, the model promotes impact but also for their social and sustainable business practices that ensure environmental footprints. This holistic long-term viability for both the company approach encourages companies to and the communities it serves. This engage with stakeholders, including local forward-thinking perspective aligns communities, to understand their needs corporate strategies with broader societal and concerns. goals. CORPORATE CITIZENSHIP MODEL ▪ Corporate citizenship refers to the extent to which businesses engage in socially responsible practices that benefit their communities and the environment. This includes efforts to improve living standards, promote social equity, and protect the environment while maintaining profitability for stakeholders. ▪ It is a comprehensive concept that encompasses a company's responsibilities toward society, integrating ethical, legal, and economic obligations. ▪ It reflects a shift from viewing businesses solely as profit- generating entities to recognizing them as vital contributors to social welfare and environmental sustainability. NEW MODEL OF CSR ▪ The new model of Corporate Social Responsibility (CSR) is evolving to address contemporary challenges and stakeholder expectations more effectively. Recent research proposes several innovative frameworks that integrate traditional CSR principles with modern sustainability, inclusivity, and accountability. ▪ It reflects a significant evolution in how businesses approach their social responsibilities. By integrating sustainability, stakeholder engagement, and robust measurement frameworks, companies can navigate contemporary challenges while contributing positively to society. Key Features of the New CSR Models Key Features of the New CSR Models Cont’d. STAKEHOLDER MODEL ▪ This model in CSR emphasizes the importance of considering the interests and needs of all parties affected by a company's operations, rather than focusing solely on maximizing shareholder profits. ▪ This approach is rooted in stakeholder theory, which argues that businesses should create value for a broader array of stakeholders, including employees, customers, suppliers, communities, and the environment. Benefits of the Stakeholder Model Enhanced Reputation: Companies that Risk Management: By considering engage positively with stakeholders various stakeholder perspectives, build stronger reputations, leading to organizations can identify and increased customer loyalty and sales. mitigate risks more effectively. Access to Capital: Investors Employee Productivity: Valuing increasingly favor companies that employees as stakeholders can enhance demonstrate commitment to ethical job satisfaction and productivity, practices and stakeholder contributing to overall business success. engagement.  CORPORATE SOCIAL RESPONSIBILITY BEST PRACTICES COMPANY CSR BEST PRACTICES  CORPORATE SOCIAL RESPONSIBILITY REASONS TO INITIATE  Need for Corporate Social Responsibility ▪ To reduce the social cost. ▪ Can generate more profit. ▪ To enhance the performance of employees. ▪ To provide moral justification. ▪ It is a type of investment. ▪ It satisfies the stakeholders. ▪ It leads to industrial peace. ▪ Helps to avoid government regulations & control. ▪ It improves the public image. ▪ Enhance health by non-polluting measures.  CORPORATE SOCIAL RESPONSIBILITY ARGUEMENTS  Arguments for the CSR ▪ Corporate should have some moral & social obligations to undertake for the welfare of society. ▪ Proper use of resources, capability & competence. ▪ The expenditure on CSR is a sort of investment. ▪ The company can avoid many legal complications. ▪ It creates a better impression. ▪ Corporate should return a part of the wealth.  END OF DISCUSSION  CLASSWORK 4 ▪ Give at least 2 real-world examples of companies successfully implementing the stakeholder model. ▪ What role does corporate ethics play in implementing CSR strategies across different models, and how do these models impact society as a whole?